Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.

Sting Like a Jellyfish

A new player is rocking the boat and making waves in online retail.

I've been stung by a jellyfish once, and it wasn't fun. Now, online retailers will have to make sure they don't get stung by Jellyfish.com. The new comparison shopping site launched yesterday.

In a sea of "me too" comparison shopping sites like CNET Networks' (NASDAQ:CNET) MySimon.com or Google's (NASDAQ:GOOG) Froogle, the premise is pretty simple. Internet users enter an item of interest, and the site scours the stores in its network to arrive at the best deals available to the consumer. The sites are free. Operators cash in on either the traffic through advertising or through affiliate relationships with the recommended retailers to get a piece of the action.

Jellyfish is throwing a new wrinkle into the mix. Sure, it scours brand-name stores for competitive prices, but Jellyfish is taking things one step further by sharing at least half of the advertising or referral fees with its customers.

Loyalty programs aren't new. United Online's (NASDAQ:UNTD) MyPoints.com has been rewarding shoppers through its portal with gift certificates for years. The distinction here is that Jellyfish is a comparison shopping site with an attractive "cash back" program that may make things cheaper for consumers and harder for non-participating retailers.

The crux of the revolutionLet's say there's a digital camera that you've been eyeing at BestBuy.com. Best Buy(NYSE:BBY) would love to land the direct sale, but is there anyone out there who wouldn't want to shave another 2.3% off the store's online price by going through Jellyfish?

This isn't good news for companies like Amazon.com(NASDAQ:AMZN). Before Google began selling contextual advertising on its site, Amazon ran one of the best programs in affiliate marketing. Through Amazon Associates, websites of all sizes were earning between 5% to 15% at one point of media sales that they referred over to the e-tail pioneer. Amazon has tweaked its payouts over the years, but the biggest reason why you may not see as many Amazon boxes on sites these days is because of the fast-growing popularity of Google's AdSense program.

Jellyfish's arrival is only going to make things harder, since consumers will now expect discounts. Yes, Amazon has its A9 search engine where regular users get a 1.57% pricing break. It also has its Prime membership club to foster customer loyalty. Amazon has done a good job of fortifying its business. It's just that it may not be enough in a new age in which consumers are encouraged to shop around -- and now even financially rewarded for doing so.

There are no slam dunks on Wall StreetGiving patrons a shot at prizes or legal kickbacks is not necessarily a blueprint for success. Remember iWon.com? It figured it would trump larger search engines by entering its users in beefy lotteries. It's still around, but now living a rather quiet life as an appendage of IAC/InterActive(NASDAQ:IACI).

Over the holidays, MSN.com pondered the move to a rewards-based engine. Microsoft(NASDAQ:MSFT) is unlikely to steer its popular portal that way, but it's even less likely that a move in that direction would have it toppling Google.

In short, no one is going to anoint Jellyfish a disruptor. It's going to have to earn it. The key here is if Amazon and more established players react accordingly. It won't be easy. Just diving into the Jellyfish network with a generous payout opens the door to losing direct customers, but avoiding the new comparison site opens the door for rivals to make the sale.

Catch-22? Not really. Amazon is blessed to have built a portfolio of attractive secondary sites. The company owns the IMDB.com celluloid database, the Alexa.com website popularity-ranking site, and the A9.com search engine. That's above and beyond the e-commerce-related purchases of entities like Shopbob and China's Joyo.

Those properties matter. We're clearly entering an age in which paid search is leveling e-commerce barriers to marketing. Amazon has to beef up its stand-alone traffic magnets as a way to lock organic growth in to its namesake retail site.

Jellyfish repellant, uncorkedI'm not bold enough to go out on a limb and predict that Amazon will trounce Jellyfish and every other moat invader. The distractions are plenty. Market researcher ComScore pegged online sales growth over the 2005 holiday season at 24%. For the quarter, Amazon's North American sales grew at a mere 21% clip.

That's troublesome. Decelerating sales growth is expected as growth companies mature, but is Amazon no longer growing faster than the e-tail market, despite tacking on new storefront categories?

Google's paid search advertising is growing several times faster than Amazon's top line. Isn't it really just a matter of time before many of its third-party Amazon Marketplace vendors turn to that cost-effective outlet? If it happens at the same time that the consumer is being tempted to go through comparison sites to not only get the best price but also a cash-back bonus, isn't Amazon going to get hit at both ends?

Remember how potent the travel portals like Travelocity, Orbitz, and Expedia were until more travel providers offered bargains directly? The rules of Internet leveling that served Amazon so well as it was taking on bookstore superstore behemoths have come full circle. There's a big ocean out there in e-commerce, and it's loaded with more than just jellyfish stingers.

The cure? Beach sand, vinegar, and a lot of luck in landing the content necessary to circumvent the noise and virtual detours that are wooing Internet shoppers to new beaches.

Amazon has been one of the many market crushing picks to come out of theStock Advisornewsletter service. Best Buy has been another pick. You can check it out for free over the next four weeks with a 30-day guest pass. CNET is a Rule Breakers selection, and Microsoft was recommended in Inside Value.

Longtime Fool contributor Rick Munarriz is a fan of Amazon. He just happens to be a concerned one these days. He does not own stock in any of the companies mentioned in this story. The Fool has a disclosure policy. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

Author

Rick has been writing for Motley Fool since 1995 where he's a Consumer and Tech Stocks Specialist. Yes, that's a long time with more than 20,000 bylines over those 22 years. He's been an analyst for Motley Fool Rule Breakers and a portfolio lead analyst for Motley Fool Supernova since each newsletter service's inception. He earned his BBA and MBA from the University of Miami, and he splits his time living in Miami, Florida and Celebration, Florida.
Follow @market